Windows is the dominant platform for personal computers but has lost ground to Google and Apple in newer devices
Microsoft has posted its first ever loss, shedding $492 million in the fourth quarter due to a massive $6.2 billion write-down to reflect the slump in value of its online operations.
Microsoft still recorded an annual profit of $16.98 billion and said Thursday the results reflected "solid revenue growth and rigorous cost discipline."
The computing giant had announced earlier this month it would take the $6.2 billion write-down, which is required by accounting rules and does not affect the company's cash position.
Taking out one-time charges, Microsoft showed a profit of 73 cents a share, well ahead of Wall Street expectations of 62 cents.
Revenue also beat expectations, rising four percent to $18 billion in the quarter to June 30. For the full year, revenues were up five percent at $73.7 billion.
"We delivered record fourth quarter and annual revenue, and we're fast approaching the most exciting launch season in Microsoft history," said chief executive Steve Ballmer.
The company is preparing to release Windows 8, the next version of its market leading operating system and a new tablet computer, while making an aggressive move into smartphones.
Microsoft shares rose 2.14 percent to $31.32 in after-hours electronic trades. The fourth quarter losses stemmed from a charge reflecting a write-down related to the 2007 acquisition of digital advertising firm aQuantive.
Microsoft announced the deal in August 2007 in a bid to seize market share from rivals Yahoo! and Google in the lucrative market that tailors advertising to Internet search results.
Windows remains the dominant platform for personal computers, but it has lost ground to Google and Apple in newer devices, which use rival operating systems.
The company's search and online services have struggled, but its Xbox gaming system has become the hottest in the industry.
In its latest results, business services accounted for $6.3 billion in revenue and $4.1 billion in operating profits. Windows showed an operating profit of $2.4 billion on $4.1 billion in revenue.
But the entertainment unit showed an operating loss of $263 million on revenues of nearly $1.8 billion. And online services suffered a whopping loss of $6.6 billion, taking the hit from the write-down, and had revenues of just $735 million.
"For the company the size of Microsoft it is a relative blip on the radar," said Forrester analyst Michael Greene.
"The question is whether they learn from the prior mistakes, and Microsoft has a pattern of doing that."
The write-down may indicate that the company is shifting its strategy on earning revenue from online services to focus more on partnerships.
The earnings figures overall showed Microsoft is under pressure to hit the mark with sales of Windows 8 and its next-generation Office software, according to independent Silicon Valley analyst Rob Enderle.
Windows 8 will be publicly available on October 26.
It "is simply the biggest deal for this company in at least 17 years," Microsoft chief Ballmer said last week, referring to the time since the launch of the game-changing Windows 95 operating system.
"It's the glue; it's the foundation of everything Microsoft is built on."
The latest version of the operating system that is the norm for personal computers will also be used on many smartphones and tablet computers, including Microsoft's own Surface tablet.
The company has gone on record stating that Surface tablets would hit the market when Windows 8 become publicly available.